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The rush to regulate oil and gas accelerates as Jan. 20 approaches

November 29, 2016

Since election day delivered the realization that President Obama’s two terms in office would be succeeded by a Republican rather than a fellow Democrat, the Administration’s regulatory agencies have accelerated their efforts to cram through as many last-minute regulations as possible.

Nowhere has this effort been more focused than on the oil and natural gas industry.

Since November 8, we have already seen the following events take place:

  • On November 15, the Bureau of Land Management (BLM) issued its final rule on venting and flaring natural gas from wells drilled on federal lands. Later that same day, both the Western Energy Alliance (WEA) and the Independent Petroleum Association of America (IPAA) filed suit in federal court challenging the regulation. The industry lawsuit contends that the new regulation goes outside of the TBLM’s authority by creating an air quality regulatory program, and area of regulation reserved to the Environmental Protection Agency (BLM) and state environmental quality agencies.
  • On November 17, Interior Secretary Sally Jewell announced unilateral cancellation of 65 oil and gas leases in the White River National Forest. Sec. Jewell said she was taking the action due to the fact that the leases, which sit atop the Mancos Shale, were “non-performing”. She failed to note that the main reason the leases were in that “non-performing” state is that they have been tied up in the feederal bureaucracy for the entire duration of the Obama Administration. The cancellation of these leases is especially impactful since these leases represent the best opportunity to develop the Mancos Shale, which the United States Geological Survey (USGS) estimated in June of this year to be the second largest deposit of natural gas in the United States, behind only the gargantuan Marcellus Shale in the Northeastern part of the country.
  • On November 18, the Department of the Interior (DOI) issued its final five-year plan for leasing on federal lands and waters. The plan removes areas of the Arctic waters in the Chukchi and Beaufort Seas – which had been included in its previous draft – from leasing consideration. The plan represents a victory for anti-development groups who have long sought to block development of oil and gas resources in the U.S. Arctic region. As I wrote in August, the plan will also leave the U.S. without any program to compete for resource plays in the Arctic at a time when Russia has created the world’s largest fleet of ice-breaker ships and is aggressively moving into the region. DOI Secretary Sally Jewel cited “industry’s declining interest” in the region as a major reason for the decision, but again failed to note that the Administration’s efforts to make development in the region as difficult and expensive as possible have helped to reduce such interest.

Alaska Senator Lisa Murkowski, Chairman of the Senate Energy Committee, was outraged by DOI’s refusal to include the Arctic lease sales in its final plan. “Why the president is willing to send all of those benefits overseas is beyond explanation,” Murkowski said. “And it is even more stunning that just one day after urging the new administration to stand up to Russia, he continues to cede leadership on Arctic energy production to them.”

As President Obama demonstrated when he assumed office, this action by DOI is highly vulnerable to reversal by the incoming Trump presidency. In January 2009, the Obama Administration placed a “pause” in implementation of a five-year plan that had been finalized by the Bush Administration late in 2008, and reduced its number of planned lease sales by 25%. Unless Mr. Obama takes further action to make modification of this plan more difficult – as anti-development groups are pressuring him to do – the Trump Administration could take similar action and reinstate the Arctic leases sales next year.

The BLM rule on venting and flaring is also quite vulnerable. Because it was finalized so late during an outgoing administration, it becomes subject to the provisions of the Congressional Review Act, along with the myriad other regulations we can expect to be shoved through the process between now and January 20. It will be up to congressional discretion to determine which regulations are worthy of addressing in that manner.

The lease cancellations, however, would be far more difficult to reverse. The secretarial decision is essentially the final word on the matter, which means that the whole process would have to be started over again, beginning with a lease sale in the area being included in the DOI five-year plan. Predictably, no such lease sale exists in the DOI plan, and even if one did, it’s hard to see why any company would be willing to bid on the leases, given the uncertainty surrounding whether they would ever actually be able to get to the point of drilling a well.

That type of uncertainty, more than anything else, will likely become the Obama legacy when it comes to development of oil and gas resources on federal lands and waters. Federal leases in the U.S. used to be some of the most attractive assets any oil and gas producing company could own, in large part due to the high degree of predictability that formerly existed in U.S. law and policy governing such leases. This predictability gave the U.S. government a competitive advantage over other nations in its ability to reap the benefits from such leases in the form of lease bonus payments and federal royalties.

As that level of predictability has fallen over the last eight years, so has interest in participation in federal lease sales in general. Regardless, the Administration seems intent on casting this regrettable legacy in stone between now and January 20.

By David Blackmon

Source: Forbes

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